Saturday, April 16, 2011

Company profile:MFL is the largest gold loan financing company in India in terms of loan portfolio. Company provides personal and business loans backed by gold.
As of March 31,2010 total loan portfolio was 2.8 million loan accounts.
MFL operates through its 1921 branches across 20 states and 2 union territories.

Mode of Business: MFL works as non deposit taking NBFC headquartered in Kerala. MFL issues non convertible debentures called "Muthhoot gold bonds" on a private placement basis. Proceeds from this forma significant source of funds for MFL"s loan business.
Besides this MFL also goes for bank and other debt instruments.
Gross NPA of MFL was below .5% for past 3 years.

MFL SWOT Analysis:

Strengths:(1) Largest branch network among gold loan NBFCs with about 1925 branches.
(2) Operating history evolves over a period of 70 years.
(3) As loans are collaterised by gold minimum documentation is required and short turnaround time (TAT).
(4) A1+ ranking by ICRA and P1+ ranking by CRISIL. (5) Market leader in Gold loan business in India with a strong presence in under-served rural and semi urban markets where large portion of population has limited access to credit.

Opportunities: (1) MFL is working on making gold loan as lifestyle product to expand the customer base.
(2) MFL is also laying its hands in money transfer and foreign exchange & wind mill services

Threats:(1)Sharp fall in gold prices may result in more loan defaults.
(2) Adverse Govt. & RBI policies in future.
(3) Competition from few banks which provide gold loan at cheaper interest rates than NBFCs.

Debt Equity ratio: 10 (this shall come down to around 4 after the completion of the IPO)

Inference:Purpose of the issue is to expand the capital base of the company to meet future capital requirement for funding of loans.
With rising gold prices scenario, this business model is much safer in comparison to micro finance companies.
Higher P/E values are justified considering the average CAGR growth of net profit for last 5 years well above 50%.
The issue is supposed to give at least 15% return on the listing day provided overall market does not gets into a tailspin.